Netflix signage next to the Nasdaq MarketSite in New York, USA, on Friday, January 21, 2022.
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Netflix shocked the world this week by saying it plans to finally tackle the rampant practice of password sharing.
More than 100 million households use a shared password, Netflix said Tuesday, including 30 million in the US and Canada.
But the video streamer isn’t planning to simply freeze those shared accounts. Instead, the company is likely to favor an additional fee for accounts used by multiple people outside the household.
Netflix’s plan to capture that lost revenue would start with sending an alert to account holders whose passwords are being used by other households.
The company has already started a test of this function in Peru, Costa Rica and Chile. For accounts that share a password between addresses, Netflix charges an additional fee to add “sub-accounts” for up to two people outside the household. The price is different per country: around $2.13 per month in Peru, $2.99 in Costa Rica, and $2.92 in Chile, based on current exchange rates.
The company also allows people who use a shared password to transfer their personalized profile information to a new account or a subaccount, allowing them to keep their viewing history and recommendations.
“If you have a sister, say, who lives in a different city, you want to share Netflix with her, that’s great,” chief operating officer Greg Peters said during the company’s earnings conference call. “We’re not trying to shut down that exchange, but we’re going to ask them to pay a little bit more to be able to share with her and for her to get the benefit and value of the service, but we also get the revenue associated with that viewing.”
Netflix did not say how much revenue it expects to generate from implementing its sharing strategy around the world, though Peters said he thought it would take about a year to get its global pricing sub-account into use.
A survey by research organization Time2Play suggested that about 80% of Americans who use someone else’s password wouldn’t get their own new account if they couldn’t share the password. It did not investigate how many checking account payers would be willing to pay more to share with others.
Peters also suggested that the company may still tweak pricing or further review its testing strategy.
“It’s going to take a while to figure this out and get the balance right,” he said. “So just to set your expectations, I think we’re going to spend a year or so iterating and then implementing all of that so we can launch that solution globally, including markets like the United States.”
Questions without answer
The Netflix plan is unprecedented. No major streamer has ever cracked down on password sharing before. Other streaming service owners, including Disney, Warner Bros. Discovery, Comcast’s NBCUniversal and Paramount Global, are not likely to set their own plans until after they review Netflix’s password-sharing reforms.
No doubt some account holders will be surprised when they hear from Netflix that their passwords are being shared. It’s also unclear how long Netflix would allow those watching on a shared account to keep access if the primary account holder decides not to pay the additional fee.
In addition, Netflix will have to be careful in defining password sharers to avoid mislabeling people as abusers, such as family members temporarily living away from home.
An unwillingness to act against this group of users would likely save millions of people from Netflix’s crackdown, at least to begin with.
“They will start with serial abusers,” said Rich Greenfield, a media analyst at LightShed Partners. “If you have 15 people using your account, it’s pretty easy.”
The company is also unlikely to want its employees to be embroiled in disputes over what is classified as a main account and what is classified as a subaccount. Questioning those definitions could be off-putting to both staff and customers, who have so far viewed Netflix as the best-in-class brand.
But “Netflix knows who you are,” Greenfield said, whether you’re using your own custom profile or not.
Five years ago, Netflix encouraged password sharing. The company’s philosophy at the time was that they simply wanted more views on their content, which in turn would build buzz and lead to actual subscriptions. That strategy seemed to pay off. Netflix subscriptions have grown every quarter for more than 10 years, until the last quarter.
In 2017, Netflix’s corporate account tweeted “Love is sharing a password.”
Now, the company would love for you to stop doing it.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
WATCH: Netflix will test an additional fee for sharing passwords